ii view: Mitchells & Butlers food sales warmed by cooler weather

Fourth-quarter trading update to 19 September

• Like-For-Like (LFL) sales up 1.4%
• Drink LFL sales up 3.8%
• Food LFL sales up 0.6%

Guidance:

• Expects 2026 profit to match current City forecasts
• Expects cost headwinds for FY 2027 ahead of £95 million, down from £120 million in FY2026 - equivalent to around 4% of its cost base

Chief executive Phil Urban said:

"We are pleased to see like-for-like sales return to growth in the fourth quarter, with trading performance ahead of the market, demonstrating the strength and resilience of our diverse portfolio of brands and the appeal of our offering to guests.

“Looking ahead, we enter the new financial year with confidence. Normalised cost headwinds, combined with our ongoing efficiency initiatives and a proven capital investment programme, provide a strong platform for further growth in earnings and long-term shareholder value."

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ii round-up:

Pub and restaurant group Mitchells & Butlers (LSE:MAB) today detailed improved quarterly sales, with profits for the full year expected to broadly match City forecasts.

Same outlet or like-for-like (LFL) sales up 1.4% for the fourth quarter to 19 September was an improvement from unchanged sales in the previous third quarter. Lower temperatures, or more normalised weather returned food sales to growth of 0.6%, a contrast to the 2.4% fall suffered in the third quarter.

Shares in the FTSE 250 company rose 1.5% in UK trading having come into this latest news up by around 4% so far in 2026. Rival Wetherspoon (J D) (LSE:JDW) is up nearer 10% during that time. The FTSE 250 index is up 8% year-to-date.

Mitchells operates over 1,700 pubs and restaurants including brands such as All Bar One, Nicholson’s, Toby Carvery, and even Innkeeper hotels.

The hospitality group continues to expect cost headwinds for the 2027 financial year to moderate, with costs of £95 million forecast, down from £120 million in the year to 30 September 2026. That’s equivalent to around 4% of the group’s cost base.

Reduced cost headwinds and Mitchell’s ongoing efficiency improvement, or Ignite initiatives are expected to underwrite growth in earnings going forward.

LFL sales for the year to 19 September rose 2.1%, with total sales improving 1.2%. Annual results to 30 September are likely to be announced late November or early December.

ii view:

Birmingham headquartered Mitchells employs around 50,000 people. Food generated most sales during its last financial year at 54%, with drink 43%, and services such as rents from unlicensed properties a small balance of 3%. Away from the UK, Mitchells also operates the ‘Alex’ chain of bars in Germany, generating 4% of overall sales.

For investors, group net debt of £1.15 billion as of late April compares to a stock market value of £1.64 billion and sits against a backdrop of expected higher UK interest rates. Unpredictable events such as the weather and rail and tube strikes have and can impact sales. Higher labour costs following previous government tax hikes are being battled, with food and energy costs historically volatile, while the halted dividend payment to help reduce debt contrasts with forecast yields of 1.5% or more at rivals Wetherspoons and Fuller Smith & Turner  Class A (LSE:FSTA).

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More favourably, management’s expected cost headwinds for the pending financial year of £95 million is much less than the previous two years. Some 19 different brands are spread across the mid-to-upper market segments, offering diverse consumer exposure. Falling group net debt was previously highlighted as underpinning management’s ongoing deliberation about restarting shareholder returns, while the group’s ‘Ignite’ programme continues to target increased efficiencies.  

On balance, and while risks remain, a diversity of established brand names and a consensus analyst fair value estimate above 345p per share give grounds for hope.

Positives:

• Diversity of brands
• Ongoing management efficiency programme

Negatives:

• Uncertain economic outlook
• Potential currency headwinds from Germany business

The average rating of stock market analysts:

Buy